Vertical market relationships are composed by the connections between businesses, their customers and suppliers. These types of relationships are essential to the overall productivity and success of the organization. Customers cannot be served without suppliers and suppliers are not needed without customers. The necessary information is gathered and studied by analyzing customers and suppliers. This assists the company’s leaders in determining how to successfully penetrate a particular business market and obtain profitability. The external analysis grants managers information, and information is power when it comes to strategizing to reach company goals.
Customers are always considered first and of extreme importance in vertical market relationships. An analysis about which customers the firm desires to keep attract, and a close look at the characteristics of customers in markets they desire to enter is an important part of the external analysis. Customers are the drivers of an organization. Without customers, a firm has no business, revenue or reason for existence. Daniel F. Spulber (2009), “Customers provide the company’s revenue, its motivation and its direction” (p. 86). A firm must frequently evaluate changes and shifts in customer’s preference, income and information. This allows the organization to adapt and continue supplying the ever changing competitive markets they serve while also maintain profitability. There are different factors that drive customer’s preferences and an external analysis is done to help discover and provide this information. Price can be a factor but is not always the main consideration. Customers will be generally willing to pay more for the product they want. Many times they will be willing to spend more of their money if they see the value and are able to notice a differentiator from the alternative. As the firm considers
VERTICAL ANALYSIS PAPER 3 change of services or products it must understand its customer’s and make sure that change will be well received. As Daniel F. Spulber (2009) says; “The company needs to have a handle on which of its existing customers it is trying to retain and what new customers it hopes to attract” (p. 87).
Even though price might not always be the main decision criteria to making a buying choice, firms should analyze market prices and realize that personal budgets can, and do at times affect purchases. To understand customer preference and tailor products and prices better than anybody else allows firms to gain a competitive advantage over the competition. Daniel F. Spulber (2009) tells us that we have to, “Get close to the customer” (p. 87). The closer the organization is to the customer, the better off it will be. Closeness gives the organization knowledge and allows them to improve and maintain service.